Ivanhoe Inc. has been manufacturing its own finials for its curtain rods. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 61% of direct labor cost. The direct materials and direct labor cost per unit to make a pair of finials are $4 and $5, respectively. Normal production is 32,300 curtain rods per year. A supplier offers to make a pair of finials at a price of $12.90 per unit. If Ivanhoe accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $46,500 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products. (a) Prepare the incremental analysis for the decision to make or buy the finials. (Enter negative amounts using either a negative sign preceding the number eg.-45 or parentheses e.g. (45)) Direct materials Direct labor Variable overhead costs Fixed manufacturing costs Purchase price Total annual cost (b) Should Ivanhoe buy the finials? o, Ivanhoe should $ o, income would Make o the finials. by $ Buy (c) Would your answer be different in (b) if the productive capacity released by not making the finials could be used to produce income of $35,355? Net Income Increase (Decrease)
Ivanhoe Inc. has been manufacturing its own finials for its curtain rods. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 61% of direct labor cost. The direct materials and direct labor cost per unit to make a pair of finials are $4 and $5, respectively. Normal production is 32,300 curtain rods per year. A supplier offers to make a pair of finials at a price of $12.90 per unit. If Ivanhoe accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $46,500 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products. (a) Prepare the incremental analysis for the decision to make or buy the finials. (Enter negative amounts using either a negative sign preceding the number eg.-45 or parentheses e.g. (45)) Direct materials Direct labor Variable overhead costs Fixed manufacturing costs Purchase price Total annual cost (b) Should Ivanhoe buy the finials? o, Ivanhoe should $ o, income would Make o the finials. by $ Buy (c) Would your answer be different in (b) if the productive capacity released by not making the finials could be used to produce income of $35,355? Net Income Increase (Decrease)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Ivanhoe Inc. has been manufacturing its own finials for its curtain rods. The company is currently operating at
100% of capacity, and variable manufacturing overhead is charged to production at the rate of 61% of direct
labor cost. The direct materials and direct labor cost per unit to make a pair of finials are $4 and $5, respectively.
Normal production is 32,300 curtain rods per year.
A supplier offers to make a pair of finials at a price of $12.90 per unit. If Ivanhoe accepts the supplier's offer, all
variable manufacturing costs will be eliminated, but the $46,500 of fixed manufacturing overhead currently
being charged to the finials will have to be absorbed by other products.
(a)
Prepare the incremental analysis for the decision to make or buy the finials. (Enter negative amounts using
either a negative sign preceding the number eg.-45 or parentheses e.g. (45))
Direct materials
Direct labor
Variable overhead costs
Fixed manufacturing costs
Purchase price
Total annual cost
(c)
(b)
Should Ivanhoe buy the finials?
o, Ivanhoe should
o, income would
Make
JOONU
o the finials.
by $
Buy
Would your answer be different in (b) if the productive capacity released by not making the finials could be used
to produce income of $35,355?
Net Income
Increase (Decrease)
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